Union (V-tex) Shirt Factory Ltd v. Union V-tex Realty Ltd and Others

HCA012520/1983

BETWEEN

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Coram: Hon. Clough, J.

Dates of the Hearing: 23 and 24 January 1984

Date of Delivery of Judgment: 27 February 1984

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JUDGMENT

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1. On the 24th January, 1984 I granted the application of the Plaintiff by its Inter-partes Summens issued on the 17th October 1983 and made an order injuncting the 1st Defendant until the trial of this action or further order (1) from dealing in anyway with the property known as No.529 Hennessy Road ("the Hennessy Road property") and (2) to retain the proceeds of sale of the properties situated in Kwun Tong and known as Nos.54-56 Tsun Yip Street ("the Kwun Tong property fund") in the bank account in the joint names of the respective solicitors of the Plaintiff and the 1st Defendant where those moneys had previously been deposited under circumstances hereinafter mentioned. I now give my reasons for granting the Plaintiff's application which I reserved at the date of the order after two days of argument by counsel for the parties.

2. It was common ground that this action is identical in substance to a consolidated actions (Nos.219 and 602 of 1976) brought by the Plaintiff against the Defendants in this action and two other parties. The consolidated actions were dismissed for want of prosecution before this action began.

3. The Plaintiff in both actions is a company in compulsory liquidation which was the subject of a winding-up order made on the 18th April 1975 under which the Official Receiver was appointed to be the liquidator of the Plaintiff. The liquidator who has had the conduct of both actions began the consolidated actions by Writs issued on the 30th January 1976 against Realty and on the 26th March 1976 against six individual defendants, including the four individual Defendants in the present action. On the 30th January 1976 the Plaintiff obtained an ex-parte Order from McMullin J. in High Court Action No.219 of 1976 injuncting Realty from dealing in any manner with the Hennessy Road and Kwun Tong properties. On the 31st March 1976 Li J. varied the order of McMullin J. by authorising the sale of the Kwun tong property and the payment of the proceeds of sale thereof ($3.4 million) into the joint account mentioned above where the proceeds of sale were directed to remain pending the disposal of the action.

4. The Hennessy Road and Kwun Tong properties had been purportedly assigned to Realty on the 2nd February 1973. Realty was incorporated on the same date. For reasons which are set out in the Amended Consolidated Statement of Claim in the consolidated actions, the Plaintiff alleges that the purported disposition of the above mentioned properties was effected fraudulently and in breach of their fiduciary duty by two of the defendants in the consolidated actions who were directors of the Plaintiff acting without due authority on behalf of the Plaintiff and also purporting to act as directors of Realty without due authority. The properties were allegedly sold at a gross undervalue to the knowledge of the directors of Realty at the material time as part of what amounts to an allegedly fraudulent scheme under which the Plaintiff in fact received no consideration at all for the transfer of the properties and the individual defendants contrived to create for themselves a capital reserve of $4,040,000 which was wrongfully applied in full payment of 4,040,000 $1 shares issued as fully paid up to themselves. I emphasise that the present directors of Realy were no party to any part of this alleged scheme.

5. It suffices for the purposes of this application to mention that the relief claimed against Realty in the consolidated actions was a declaration that the purported assignments dated the 2nd February 1973 were void or voidable and thereby avoided and, alternatively, a declaration that Realty held the properties or the proceeds of sale thereof as trustees for and on behalf of the Plaintiff. The Plaintiff also claimed an order that Realty should take all necessary action to constitute the Plaintiff as the legal and beneficial owner of the Hennessy Road property. The Plaintiff further claimed an account and inquiries against Realty in respect of the profits made by Realty from the properties since the 2nd February 1973 and payment of all sums that might be found due upon the taking of such account and the making of such inquiries. Appropriate relief was claimed against the individual defendants which it is not necessary to specify here.

6. On the 31st March 1983 Mantell J. dismissed the application of the defendants in the first consolidated actions for dismissal of those actions for want of prosecution. On the 30th June 1983 the Court of Appeal allowed the appeal of Realty and several of its co-defendants in the consolidated actions and dismissed the Plaintiff's actions with costs.

7. The proceedings before Mantell J. and the Court of Appeal were conducted on the footing that a six year limitation period applied to the Plaintiff's claims and that the period in question would have expired by January 1982. After the actions had been dismissed by the Court of Appeal the Plaintiff sought leave to appeal to the Judicial Committee of the Privy Council and also leave to re-open the appeal and to argue that the order of Mantell J. should be affirmed on the ground that in so far as Mantell J. had held that the limitation period in the consolidated action had expired he erred in that he failed to take into account properly or at all the provisions of s.20(1) of the Limitation Ordinance (Cap. 347) and the fact that the consolidated actions involved a claim or claims of the nature described in that section.

8. Having succeeded on the appeal the 1st Defendant applied on the 4th August 1983 to the Court of Appeal for an order discharging the injunctions affecting the Hennessy Road property and the Kwun Tong property fund under the order of McMullin and Li J.J. made on the 30th January and the 30th March 1976 respectively. On the 11th October the Court of Appeal made two orders in relation to these various applications. By one order the application of the 1st Defendant for the re-hearing of the appeal and for leave to appeal to the Judicial Committee of the Privy Council was dismissed with costs. By the other order the injunctions mentioned above which had been granted by McMullin and Li J.J. were discharged and it was ordered that the Kwun Tong property fund be forthwith paid out of the relevant joint account to Realty. Counsel for the Plaintiff and Realty respectively did not agree regarding the reasons given by the Court of Appeal for discharging the two injunctions in the consolidated action but, in my judgment, it suffices here that the injunctions were discharged so that on the 11th October 1983 Realty was free to dispose of the Hennessy Road property as it thought fit and the Plaintiff was obliged by its solicitors to procure the payment of the Kwun Tong property fund out of the joint bank account to Realty.

9. Counsel for the Plaintiff informed the court when opening his application under the inter-partes Summons in this action that on the 11th October 1983 an application had been made on behalf of the Plaintiff to continue the above mentioned injunctions pending an application for special leave but the Court of Appeal indicated that it did not consider it had jurisdiction to make any such order. An application for special leave to appeal in the consolidated actions has in fact been made and my understanding at the date of the hearing of the Plaintiff's inter-partes Summons in this action was that the application for special leave was due to be heard by the Judicial Committee on the 6th February 1984 or thereabouts.

10. Having been unsuccessful in re-opening the appeal or obtaining leave to appeal to the Judicial Committee in the consolidated actions on the 11th October 1983 and faced with the discharge of the injunctions granted by McMullin and Li, J.J. the Plaintiff issued a Writ on the same date to begin this action against Realty and four of the individual defendants in the consolidated actions. The claims of the Plaintiff in this action against Realty are exactly the same as the claims of the Plaintiff against Realty in the consolidated actions. The writ has not been served on the individual Defendants because the attitude of the Plaintiff is that if the pending petition and the hoped for appeal to the Privy Council succeeds, there will be no point in pursuing the present action any further and costs will have been saved by not serving the individual Defendants. If the pending petition for special leave and the hoped for subsequent appeal should fail the Plaintiff's intention is to proceed with this action and, at that stage, serve the writ on the individual Defendants.

11. On the 17th October 1983 the Plaintiff issued the inter-partes Summons which eventually came before me on the 23rd January 1984. On the same day as the inter-partes Summons was issued Mr. Burns the solicitor having the conduct of this action on behalf of the Plaintiff communicated by telephone with Mr. Spencer Lee who has the conduct of the action on behalf of Realty and informed him that Mr. Burns intended to apply to the court for orders in terms of the inter-partes Summons which had been issued on that date. He also informed Mr. Lee that unless by the close of business on the 17th October Mr. Lee or his clients gave Mr. Burns' firm an undertaking in lieu of the orders being sought by the Plaintiff, the Plaintiff would have no alternative but to apply ex-parte for the necessary orders. Mr. Lee evidently replied that he would discuss the matter with counsel and refer back to Mr. Burns but the only communication received by Mr. Burns on the 17th October was a letter of that date received from Mr. Lee's firm requesting the Plaintiff's solicitors to inform the bank holding the Kwun Tong property fund deposit to release the moneys to Mr. Lee's firm on behalf of Realty upon maturity on the 18th October 1983.

12. Accordingly on the 18th October 1983 the Plaintiff on ex-parte application to Jones J. obtained an order, effective until after the hearing and determination of the inter-partes Summons which came before me whereby Realty was injuncted from dealing in any manner with the Hennessy Road property and injuncted to retain the Kwun Tong property fund on its existing deposit in the joint names of the solicitors for the Plaintiff and Realty. The ex-parte application was supported by two affidavits of Mr. Burns in which a clear account was given of the previous consolidated actions and its outcome and the purpose of the present action and the application for the ex-parte injunction were candidly explained. The order made by Jones J. on the 18th October 1983 contains the usual undertaking as to damages on behalf of the Plaintiff. In his affirmation filed on the 16th January 1984 in opposition to the Plaintiff's inter-partes Summons Mr. Spencer Lee complains, with justification, that the Plaintiff failed to disclose to Jones J. on the ex-parte application that the Plaintiff did not have any assets to meet its undertaking as to damages. However no application was made to discharge the ex-parte order.

13. By its inter-partes Summons the Plaintiff applied for injunctions inhibiting the application or disposal of the Hennessy Road property and the Kwun Tong property fund in terms similar to those contained in the ex-parte order. I have approached the application on the footing that the principles laid down in American Cyanamid Co. v. Ethicon Ltd. (1975) A.C. 397 (H.L.) are applicable. Although Lord Diplock referred in the American Cyanamid case at p.406C to an application for an interlocutory injunction to restrain a defendant from doing acts alleged to be in violation of the plaintiff's "legal right" I understand Lord Diplock to be using the expression "legal right" as relating to any right, whether it be at law or in equity which a court will enforce. I am fortified in this view by the passage in Gouriet v. U.P.W. (1978) A.C. 435 (H.L.) at p.501D where Lord Diplock stated that "The only kinds of rights with which courts of justice are concerned are legal rights;". Indeed, In re Lord Cable, dec'd. (1977) 1 W.L.R. 7 where the plaintiffs claimed to be beneficiaries seeking to execute a trust and sought to obtain an inter-locutory injunction to restrain the trustees from transmitting certain moneys out of the jurisdiction of the English court the application was dealt with by Slade J. on the basis that the principles applied by the House of Lords in the American Cyanamid case were applicable.

14. Although Realty opposed the Plaintiff's application for interlocutory relief my understanding was that counsel for Realty conceded that the facts relied on by the Plaintiff in this action do raise a serious question for trial within the American Cyanamid case and the subsequent dicta of Lord Diplock in Eng Mee Yong v. Letchumanan (1980) A.C. (P.C.) at p.337C-D.

15. Mr. Burns had in his first affidavit verified the facts pleaded in the Amended Consolidated Statement of Claim in the earlier consolidated actions. He was able to do this by reference to books and papers which had come into the hands of the Official Receiver as liquidator of the Plaintiff and by reference to documents disclosed by the Defendants on discovery in the earlier consolidated actions. On the basis of Mr. Burns' evidence counsel for the Plaintiff contended that the Plaintiff had established that in the absence of explanation it had an overwhelming case. For my part I accept that the facts as pleaded in the consolidated actions and verified by Mr. Burns on the basis of documentary evidence established for the purposes of this interlocutory application that there is a serious question to be tried in this action between the Plaintiff and Realty. I do not put it higher than that.

16. This is a case in which the existence of the alleged constructive trusteeship of Realty is in issue. Accordingly, assuming that the Plaintiff is right in contending that the effect of s.20(1)(b) and s.7(2) is that there is no limitation defence available to Realty in this action, it is clearly arguable under the circumstances, at any rate, in relation to the Kwun Tong property fund, that a defence of laches is available: see Joyce v. Joyce (1978) 1 W.L.R. 1170 at pp. 1174 F to 1175; Snell's Principles of Equity at p.290; and Underhill's Law of Trusts and Trustees at p.732(6). However as Lord Diplock emphasised in the American Cyanamid case at p.407 H, it is no part of the court's function at this stage of the litigation to decide difficult questions of law which call for detailed argument and mature consideration and I content myself with holding that, in my judgment, the Plaintiff has established in the present case that there is a serious question to be tried between itself and Realty.

17. Seeking to determine where the balance of convenience lies the first question to consider is whether if the Plaintiff were to succeed at the trial in establishing its right to a permanent injunction (or in the present case to an order for the transfer of the relevant property to the Plaintiff) it would be adequately compensated by an award of damages for the loss it would have sustained if between the present time and the conclusion of the trial of a successful action by the Plaintiff Realty were to dispose of either of the two relevant assets. As Lord Diplock put it in the American Cyanamid case at p.408C -

"If damages in the measure recoverable at common law would be adequate remedy and the defendant would be in a financial position to pay them, no interlocutory injunction should normally be granted, however strong the plaintiff's claim appeared to be at that stage."

18. Lord Diplock clearly contemplates damages in the measure recoverable at common law in the above context. In the present case it seems to me to be abundantly clear from the writ that, although the existence of the alleged trusteeship of Realty is disputed, the Plaintiff is seeking to obtain an order for the execution of an alleged trust. Accordingly if the Plaintiff establishes its claim in the action at the trial and all possible defences including a possible defence of laches fail, it is, in my judgment, most unlikely that the court would contemplate refusing to execute the alleged trust by ordering Realty to transfer both the Hennessy Road property and the Kwun Tong property fund to the Plaintiff. There is no claim in the writ by the Plaintiff against Realty for damages at all. The Plaintiff is in fact seeking, quite correctly in my judgment, restitution of allegedly trust property together with an account from the alleged trustee of all profits made by Realty from the trust properties since the 2nd February 1973.

19. Damages in the measure awarded at common law simply would not be either appropriate or sufficient remedy, partly because no such remedy is claimed by the Plaintiff and partly because the obligation of a defaulting trustee is essentially that of effecting restitution to the trust estate: see Bartlett v. Barclays Trust Co.(Nos.1 & 2) (1980) 1 Ch. 515 at p.543; c.f. Halsbury's Laws of England, 4th Edition, Volume 16 at para. 1297 where the distinction between damages at law and restitution in equity is clearly drawn.

20. Moreover, it is, in my judgment, fundamental trust law that a court will, unless there are special circumstances, restrain a threatened breach of trust and execute a trust where the existence of the trust and the threatened breach is established: see Snell at p.281; Halsbury's Laws of England, Volume 24 at para. 1010 and Spry on The Principles of Equitable Remedies, 2nd Edition at p.361. Counsel for the Plaintiff cited other passages from other text books stating the same principles and I refrain from referring to them only because these principles are, in my judgment, so fundamental that the references above must suffice to make the point that a trustee in breach of his trust will not be permitted to retain trust property and pay compensation to his beneficiary where the beneficiary claims restitution of the trust property itself, unless there are very special circumstances, and they do not appear to have manifested themselves in the present case.

21. Counsel for Realty argued that because the Plaintiff was in liquidation and the liquidator would want money for the benefit of the creditors in the liquidation, he would not want to do anything more than sell the Hennessy Road property if it were recovered by the Plaintiff and in any event the Kwun Tong property fund was itself money. Counsel for the Plaintiff did not accept that the liquidator or the committee of inspection would want to sell the Hennessy Road property immediately they recovered it but, as indicated above, I do not consider that a defaulting trustee is entitled to withhold trust assets from his beneficiary. To hold otherwise would seem to me to be contrary to the fundamental principles of trust law and to give a defaulting trustee some strange form of option to apply trust property for his own purposes provided he pays monetary compensation to his beneficiaries.

22. Accordingly I do not consider that damages would be an adequate remedy for the Plaintiff if it were to succeed at the trial of this action. It is not therefore necessary at this stage for me to pursue the question whether Realty would be in a position to pay any damages that might be awarded to the Plaintiff at the conclusion of the trial.

23. Equally it is abundantly clear that, assuming that damages in the measure recoverable under the Plaintiff's undertaking would be an adequate remedy to compensate Realty in respect of any loss it would sustain by being injuncted until the conclusion of the trial from dealing in the relevant property, the evidence adduced on behalf of Realty in the affidavit of Mr. Spencer Lee filed on the 16th January 1984 demonstrates that the Plaintiff will not be in a financial position to pay any damages under its undertaking. On the 17th December 1983 the liquidator only held a sum of $656,961.73 and he faces an enormous bill of costs as a result of the previous consolidated actions far in excess of the funds in his hands. He also faces prospective liability in respect of the Plaintiff's undertaking as to damages given in the interlocutory stage of the previous consolidated actions. The importance of this liability is emphasised by the clear conclusion of the Court of Appeal when giving reasons for dismissing the consolidated actions for want of prosecution that Realty had suffered prejudice in its business affairs as a result of the interlocutory injunctions inhibiting dealings in the Hennessy Road property and the Kwun Tong property fund during the subsistence of the interlocutory injunctions.

24. Accordingly, there being more than doubt as to the adequacy of the respective remedies in damages available to both the Plaintiff and Realty, the question of balance of convenience has to be determined. After careful and anxious consideration of the various matters relied upon by the parties I concluded that the most prudent course would be to maintain the status quo by retaining the relevant property in its present state for the benefit of whichever party is successful in the action.

25. As regards prejudice to the Plaintiff if an interlocutory injunction were not granted, Realty had declined to give any undertaking that it would not dispose of either of the relevant assets pending the trial of this action. Whilst it did not adduce any evidence of any positive scheme for the Hennessy Road property it claimed by the evidence of one of its directors Mr. Tsui Yiu Wah and by its counsel to be free, if it wanted to, to deal with the property. As counsel put it, if the chance came up they might consider disposing of the property. If this were to happen before the trial of the action and if the Plaintiff were to succeed in establishing its right to the Hennessy Road property and the Kwun Tong property fund together with substantial sums by way of rent, it must, in my judgment, be questionable, put at the lowest, whether the Plaintiff would ever, at the end of the day, recover adequate monetary restitution from Realty.

26. The question as to the amount of restitution that would be payable and the likelihood of the ability of Realty to pay the relevant restitution are questions which I do not consider can be decided with any degree of confidence on the evidence available before me in these interlocutory proceedings. Counsel for the Plaintiff contended that if the Plaintiff were confined to monetary restitution in the event of this action succeeding the amount of restitution payable to it would be in the region of $25.8 million. He referred to a valuation which had been exhibited to the affirmation of Mr. Tsui in which the monthly rental income of the Hennessy Road property for the period from October 1976 to October 1983 was set out together with the respective market values of the Hennessy Road property itself during that period taken as at January in each year from 1976 to 1983 inclusive and including the value of the property as at October 1983. The highest value put on the Hennessy Road property during the relevant period was $16.5 million as at January 1982. The value put on the property as at October 1983 was $5.8 million. The aggregate of the rent received during the relevant period was $3.3 million.

27. Counsel for the Plaintiff contended that the Plaintiff, if successful in the action, would be entitled to claim restitution on the basis of the highest value of the Hennessy Road property during the relevant period namely $16.5 million. On this footing he calculated a rough figure for the restitution payable by Realty as follows:-

28. Counsel for Realty contended that the proper figure would be much less, namely $15.5 million which he calculated on the basis that the relevant value for the Hennessy Road property would be the current value. The nearest value at the present time is the figure of $5.8 million referred to in the above mentioned valuation. He therefore sought to fix the approximate restitution payable by Realty in the event of the Plaintiff succeeding in the action as follows:-

29. If eventually the Plaintiff were to succeed in this action and Realty, having disposed of both the items of property were required to make restitution its obligation in equity would be to account for the profit it had made from its breach of trust or for the profit which it should be taken to have made from its breach of trust. I am by no means satisfied that the Plaintiff would be entitled, on any footing, to claim the higher value of $16.5 million as the appropriate sum for restitution in respect of the Hennessy Road property if it were to be sold in breach of trust in future. However, the difficulty about assessing the likely sum of compensation is that one is looking into an uncertain immediate future in relation to the property market and it is not possible to make any firm quantification of the likely total of restitution which would be due from Realty.

30. Furthermore there is the question, which is not one capable of determination in these proceedings, whether, if Realty has in fact been a trustee of the Hennessy Road property since its acquisition by Realty, it was under a duty to realise the property for the benefit of the beneficiaries at the peak of the market. It is significant that Realty relied in the consolidated actions upon its inability to deal with the property during the time that the market was at its peak as one of the factors of prejudice sustained by reason of the inordinate and inexcusable delay of which the Plaintiff was guilty in those Proceedings.

31. Assuming but not deciding in favour of Realty that its counsel's figure of $15.5 million is a realistic estimate of the restitution that might have to be paid by Realty to the Plaintiff if the Plaintiff succeeds in this action, the question arises whether Realty will be good for the money. The Plaintiff initially relied on the evidence of Mr. Burns for the fact that Realty showed a trading deficit of $5.3 million in its annual report dated the 28th February 1982 for 1981-1982. Mr. Burns contended that this was a factor which gave rise to a real risk that Realty would not be able to satisfy any judgment the Plaintiff might obtain in this action.

32. This allegation was countered by Mr. Tsui in his affirmation where he contended that the allegation was totally unfounded and submitted that the crucial matter to examine was the total net assets of Realty. He exhibited the Annual Report of Realty dated the 7th September 1983 for the years 1982-1983. Realty has a subsidiary called Heywood Limited. The Balance Sheets as at 28th February 1983 contained in the Annual Report for 1982-1983 set out separate figures for Realty (described as "The Company") on the one hand and, on the other hand, for the assets and liabilities of the Company and Heywood Limited (together described in the Balance Sheets as "The Group"). In his affirmation Mr. Tsui points out that the net total assets of Realty is stated in the Report to be $43,029,057 and the net assets of the Group are stated to be $43,001,093. He asserts that he has been informed by the accounts department of Realty and verily believes that the present position of the 1st Defendant is approximately the same as stated in the Annual Report.

33. The Plaintiff responded with an affidavit made by Mr. Burns on the 21st January 1984 in which he expressed concern about the viability of Realty and of its financial stability. He exhibited a group structure of Goodyear Investments Limited which is now in provisional liquidation. This table shows, and there was no denial from Realty, that Realty is owned to the extent of 86% by a company called Winfrex Enterprises Limited (referred to at page 20 of the Annual Report of Realty for 1982-1983), and that a company called "Bullion" has a 21.25% shareholding in Winfrex Enterprises Limited. "Bullion" is itself shown to be 100% owned by Goodyear Investments Limited. Mr. Burns contends that his experience of the Carrian Group and the Eda Group liquidations is that it quite often happens that when the parent of a large group of companies is placed in liquidation the liquidation of its subsidiaries and associates follows.

34. More tangible evidence of a serious nature regarding the reliability of the evidence adduced on behalf of Realty in relation to its net asset value was adduced by Mr. Burns in relation to the reference at page 10 of the Annual Report for 1982-1983 to the fact that during the year and also at the end thereof time deposits were placed with Advance Finance Limited at the prevailing market interest rate and that Mr. Tsui himself held a directorship in Advance Finance Limited.

35. Mr. Burns contended, and there was no denial from Realty, that Advance Finance Limited is also part of the Goodyear Group although not shown on the chart exhibited by him. He further stated his belief that Advance Finance Limited is also in provisional liquidation.

36. In the course of the hearing counsel for Realty disclosed that the figure of $17,498,920 indicated in the Balance sheets contained in the 1982-1983 Annual Report as the value of sundry debtors and deposits comprised a sum of $6.4 million representing the Kwun Tong property fund and that the balance (i.e. about $11 million) represented money deposited with "Advance Finance Limited". Undaunted by the attack which had been made upon the Balance Sheets of Realty, including the absence of any explanation for the fact that the total net assets value of the Group in 1983 was $43,001,093 whereas the net assets value of Realty was the larger figure of $43,029,057, counsel for Realty contended that it would be speculative to doubt the value of $24,652,409 shown in the Balance Sheets for the investment of Realty in Heywood Limited. He further contended that even if allowance were made for the $11 million invested in Advance Finance Limited there was still a balance of $33 to $34 million representing the net assets of Realty so that it would be in a position to cover a sum of say $15.5 million which might be payable by Realty to the Plaintiff by way of restitution if the Plaintiff succeeded in this action.

37. At the invitation of the court Mr. Tsui has subsequently made a supplementary affirmation on the 27th January 1984 in which he expresses his sincere apology for the failure to disclose the facts regarding Advance Finance Limited which went into provisional liquidation on the 18th January 1984 subsequent to his having supplied information through his assistant Mr. Victor Yung as the basis for his affirmation which was filed in these proceedings. He affirms that he was very heavily pre-occupied after the 12th January 1984 with the affairs of Goodyear Estates Limited (of which he is a director) which went into provisional liquidation on the 18th January 1984. He affirms that it was not his intention to make any material non disclosure in his previous evidence or to mislead the court. I emphasise that the affirmation made on the 27th January 1984 was filed after the hearing of the Plaintiff's application and after the decision of the court had been announced.

38. Once it had been demonstrated, and admitted, that the Balance Sheets in the latest Annual Report of Realty were not an accurate up-to-date position of Realty's affairs, to the tune of $11 million, I felt unable to accept the evidence of Mr. Tsui, at its face value, as a reliable statement of the true net assets value of Realty. There was no reason given for the fact that the total net value of the Group's assets in 1983 was less than the net assets value of Realty. Furthermore, although I accept that the connection of Realty with Goodyear Investment Limited is only ultimately through a 21.25% ownership of Winfrex by Bullion, the connection itself is, in my judgment, a matter justifying legitimate concern regarding the viability of Realty, bearing in mind the well known history of the Carrian and Eda Group liquidations. Considering the evidence as a whole, such as it is, in these interlocutory proceedings, I conclude that the Plaintiff, by its evidence, has cast sufficient doubt upon the viability of Realty to lead to the inference that if Realty is required at the conclusion of the trial to make financial restitution to the Plaintiff if successful in the action, there must be a real risk that the full amount of restitution will not be forthcoming.

39. In that event the Plaintiff, if successful, will be deprived not only of trust property but of full restitution.

40. As regards prejudice to Realty, its counsel rightly stressed that there was the clearest evidence that the Plaintiff was not good, or anything like good for its under-taking as to damages if an injunction were granted. This is clearly an important factor to consider in relation to the balance of convenience. However, in the light of Allen v. Jambo Ltd. (1980) 1 W.L.R. 1252 (C.A.), the impecuniosity of the Plaintiff should not by itself be a ground for denying interlocutory relief to the Plaintiff if such relief is justified on a broad view of the balance of convenience and the essential justice of the case between the parties.

41. In this connection I consider there is considerable force in the point made by counsel for the Plaintiff that if it succeeds in the action it will have demonstrated that its present impecuniosity is the result of its having been relieved of its principal assets by those responsible for the conduct of its affairs and the affairs of Realty. In principle it seems to be a harsh result that an impoverished beneficiary seeking to recover trust assets of considerable value from an allegedly defaulting trustee should be denied interlocutory relief to protect the trust assets solely on the grounds that the beneficiary, who has virtually lost all, is impecunious.

42. As to the degree of prejudice to Realty if an interlocutory injunction were granted here Mr. Tsui in his evidence stressed the high degree of prejudice which the Court of Appeal found to exist, on the basis of his evidence, by reason of the inordinate and inexcusable delay for which the Plaintiff had been responsible in the previous consolidated actions. It was contended that this prejudice would continue if an injunction were granted and this action were allowed to proceed. I accept that inevitably there must be some degree of prejudice in the future, as distinct from prejudice which has been suffered in the past, but in the absence of any evidence that Realty has any proposals or projects for the Hennessy Road property, which is valued on an existing use value basis in the valuation exhibited by Mr. Tsui, it does not seem to me that any high degree of prejudice is likely to be suffered by Realty if it is obliged to retain the Hennessy Road property for the time being and to continue to receive the rent accruing in respect of that property. There is no evidence that the property market is booming, on the contrary the valuation figures in the valuation report exhibited by Mr. Tsui speak for themselves. The Kwun Tong property fund is on deposit and earning interest. At the most Realty contends by Mr. Tsui and its counsel that it wishes to be in a position to deal in the relevant properties if it so wishes.

43. Adopting as fair and broad a view as I can I conclude that the balance of convenience, so far, is in favour of granting the injunctions sought by the Plaintiff.

44. However interlocutory relief of this nature is of course discretionary and there are other matters which were heavily relied upon by Realty. Great stress was understandably and rightly laid upon the past history of this case. The first writ in the consolidated actions had been issued in 1976 and the case concerns events occurring in 1973. The Writ in the present action was issued 10 years after those events. It was contended on behalf of Realty that delay of this nature, which had been held in the consolidated actions to be inordinate and inexcusable, debarred the Plaintiff from relief.

45. There is much force in this point but in the context of the present action I do not consider that the Plaintiff should be denied interlocutory relief for reasons of delay. The injunctions in the consolidated actions were discharged on the 11th October 1983. The writ in the present action was issued on the same date and the ex-parte application which led to the order of Jones J. was made only 7 days later on the 18th October 1983. In the result the Plaintiff, notwithstanding its inordinate and inexcusable delay in the conduct of the consolidated actions, has been vigilant since 1976 in ensuring that the allegedly trust property should not be disposed of by Realty.

46. Subject to the difficult question of laches, the Plaintiff has serious ground for contending that within the principles applied in Birkett v. James (1978) A.C. 297 (H.L.), the present proceedings are justified. That is an important issue to be determined at the trial or upon an application for dismissal of the action as an abuse of the process of the court. In the meantime I do not consider that the Plaintiff should be denied interlocutory relief in this action on the grounds that it has been dilatory in prosecuting the consolidated actions.

47. At the forefront of Realty's argument in opposition to this application was the contention that this action and this application were an abuse of the process. The Plaintiff was, Realty contended, attempting to circumvent the decision of the Court of Appeal to dissolve the injunctions in the consolidated actions. The latter actions were still alive and it was an abuse of the process to begin this concurrent action which was premature. It was intended by Realty to apply to have this action struck out in any event as an abuse of the process but the application was stated in the evidence of Realty to be one which would be made in due course. Counsel for Realty stated that after the decision of the Privy Council had been made on the appeal in the consolidated actions, further advice would be taken.

48. Birkett v. James (supra) establishes that where an action has been dismissed for want of prosecution under the inherent jurisdiction of the court by reason of inordinate and inexcusable delay causing serious prejudice to the defendant (and not for contumelious default) then, in the absence of special circumstances, if the dismissal of the action has occurred before the expiration of the relevant limitation period, the Plaintiff is entitled to begin another action: see Bailey v. Bailey (1983) 1 W.L.R. 1129 (C.A.) where this principle was applied and Janov v. Morris (1981) 1 W.L.R. 1389 (C.A.) was distinguished in the light of Tolley v. Morris (1979) 1 W.L.R. 592 (H.L.) and Birkett v. James (supra).

49. The Plaintiff claims to come squarely within the principles applied in Bailey v. Bailey (supra). However no question of laches arose in that case. As I have indicated above, a question of laches will certainly arise in this action as a defence if the action is fought out but that is a matter for the trial.

50. In my judgment the conduct of the Plaintiff in instituting this action was not intended to flout the order of the Court of Appeal in the consolidated actions but solely to protect itself and the alleged trust property in case the application for special leave to the Privy Council and any possible subsequent appeal should fail. In Birkett v. James (supra) itself the members of the House of Lords made it clear that it was not an abuse of the process of the court if a plaintiff who was in danger of having his action dismissed for want of prosecution began, before the expiration of the relevant limitation period, a new action for the same relief: see Birkett v. James (1978) A.C. 297 at pp. 322, 328, 333 and 334 cited subsequently in Joyce v. Joyce (1978) 1 W.L.R. 1170 at p.1176D; c.f. the observations of Purchas L.J. in Bailey v. Bailey (1983) 1 W.L.R. 1129 at p.1134G to the effect that it is a reasonable explanation for the existence of two writs in the same matter that the second writ has been issued to protect the Plaintiff's position where the first action is in danger of being dismissed for want of prosecution before the expiration of the relevant limitation period.

51. It goes without saying that there is no application for the striking out of this action as an abuse of the process of the court under Order 18, rule 19 before me. Such an application could only succeed in a plain and obvious case: c.f. the decision of Megarry V.C. in Joyce v. Joyce (supra) at p.1176 dismissing such an application in circumstances broadly similar to this case. Here, where I am dealing with an application for interlocutory injunctions in accordance with the principles laid down in the American Cyanamid case, I content myself by holding that on the evidence before me the institution of this action does not in all the circumstances appear to me to be an abuse of the process of the court and I do not therefore exclude the Plaintiff from interlocutory relief on that ground.

52. For the above reasons I accordingly granted the relief applied for by the Plaintiff.

53. Having conducted the opposition to the application on the basis that the Plaintiff had no assets, Realty applied for fortification of the Plaintiff's undertaking as to damages in the sum of $11 million on the footing that the Hong Kong Bank was alleged to be financing the action. There being no authority for the proposition that where a plaintiff company is in compulsory liquidation the creditors or the liquidator himself can be required to give an under-taking as to damages or for fortification, I refused Realty's application for fortification: see Halsbury's Laws of England, Vol. 24, 4th Edition, para. 1076 citing Rosling and Flynn Ltd. v. Law Guarantee and Trust Co. (1903) 47 Sol. Jo. 255.

Representation:

Mr. John Bleach instructed by M/s Jonnson, Stokes & Master for the Plaintiff.

Mr. Geoffrey Ma instructed by M/s Woo, Kwan, Lee & Lo for the 1st Defendant.